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State utility Electricidad de Portugal (EDP) has reportedly begun
construction of an offshore floating wind farm off the north-western
coast near Agucadoura in a bid to tap pioneering technology to harness
gales at sea. The National Laboratory of Engineering and Geology
estimates the country's offshore wind potential at 2-2.5GW. Meanwhile,
the Portuguese Renewable Energy Association, Apren, estimates that
600-700MW of new onand offshore wind capacity will be added in 2011.

During the first ten months of 2010, wind energy production grew 32%
compared with the same period in 2009. By the end of 2010, total
installed wind capacity in mainland Portugal, excluding the Madeira and
Azores archipelagos, stood at 3.9GW, representing an addition of 465MW
in 2010.

Driving change

This robust growth is driven by two consortia that won the public wind
power tender in 2005-07: Eolicas de Portugal, or Eneop - comprising
Enercon, Enernova/Electricidade de Portugal Finerge, Generg and TP - and
Ventinveste, consisting of Galp Energia, Martifer, Repower and
Efacec.

Eneop aims to install 1.2GW by late 2012, a year ahead of schedule, for
a total investment of EUR1.7 billion. The consortium ended 2010 with
500MW of capacity and is targeting another 250MW in 2011.

Ventinveste is developing 400MW of power and should have its first wind
farm operating shortly. A EUR16 million loan has been signed with Banco
Espirito Santo for the first venture, the 10MW Vale Grande wind farm.
Ventinveste is still awaiting authorisation for projects in the Douro
Sul and Sao Bento areas.

The pre-commercial phase of the EDP offshore project includes plans for
between three and five turbines. The commercial phase involves the
installation of 25 5MW turbines, at a cost of about EUR3 million/MW.

With a growth of 20% in 2010, wind became the third major source of
electricity supply, behind hydro and combined-cycle gas turbines.
According to power grid operator Ren, wind farms fed 9.03TWh into the
grid.

Portugal has a track record of regulatory stability and investment
visibility. The regulated market offers a stable feed-in tariff (FIT)
for wind energy of EUR74/MWh. It is valid for 15 years and tracks
inflation. However, in July the government announced it would review the
FIT. Existing projects will not see changes in their operating
conditions, but future projects will have lower tariffs.

Jorge Martins, executive president of Portuguese construction and energy
group Martifer, believes wind power is now sufficiently competitive not
to require support in the form of a FIT - a view shared by EDP.

Meanwhile, project financing is likely to see a further tightening of
criteria, given the uncertainty of tariffs. Pedro Cabaco, Caixa BI
bank's deputy director for project finance, estimates that the volume of
loans already granted surpasses EUR4.2 billion. But he warns that banks
will be faced with strong credit restrictions in 2011.

Portugal's National Renewable Energy Action Plan, which was drafted in
compliance with the EU's renewable energy directive, targets an
installed wind capacity of 6.9GW by 2020.